Goldman Sachs: We're in the 'second wave' of fintech

The next stage of development in financial technology is going to be partnerships between big banks and startups. It's actually the third wave of the industry's development, according to Jeff Gido, Goldman Sachs's Global Head of Fintech in the investment banking division. He spoke at the firm's annual financial technology conference in New York earlier this month. Here's how he laid out the stages:

In the first wave, regulatory changes, new technology and changing consumer preferences drove the big investments. "After the financial crisis, new laws made some businesses less profitable for banks, creating opportunities for tech-enabled lending and other services to fill the void," he said. "At the same time, big data, cloud computing and growing wireless usage made it easier for startups to jump in."

The changing nature of consumers also added to this, as millennials in particular, adopted real-time mobile financial services that "allowed them to bypass the complexities, processes and delays of dealing with traditional financial services."

Gido believes that we are currently in the second wave of fintech development, wherein "incumbents are using their brands and infrastructure to remain competitive with the startups." He cites a startup called Zelle, comprised of a group of banks launching a person to person payment service. Goldman Sach's own online bank, "GS Bank," launched earlier this year, is another example of innovation by a traditional player designed to keep competitive with digital offerings.

The third wave of development, he said, will be focused on partnerships between established players and fintech startups.

"In a tougher fundraising environment, the go-it-alone strategy is difficult for many startups and it can be costly for traditional financial services to build the technologies on their own," he said. "That's why we're starting to see more of a two-way dialogue in this space."

This third wave in fact, is already happening. An increasing number of fintech startups are focusing on B2B models, with the goal of selling to and partnering with traditional players. They want to take advantage of incumbents' vast and loyal customer base and offer up their own nimble, innovative technology.

And what are people most excited about in fintech? Insurance policies, he said. These seemingly unexciting two words hold a ton of possibility for innovation.

"We're seeing everything from applications that help consumers shop for insurance policies, to companies offering insurance for specific limited purposes," he said. Traditional players are increasingly developing their own internal venture capital arms to invest in these startups and they recognize the potential.